As competition in the private capital markets reaches an all-time high, many individual business brokers are finding their livelihood less and less predictable. Business owners are increasingly searching the internet, making brand awareness and access to a wider network of experts that much more important in securing a client.
Many believe the best strategy for smaller, independent M&A advisors and brokers is to join a franchise. “It is getting increasingly harder to provide great service to your clients as a small brokerage firm and a franchise system is a viable solution. Brand name recognition and economy of scale can make the process much simpler,” said Roger Murphy of Murphy Business Brokers.
To learn more about the business broker franchise system and why a broker would join one, we spoke with Murphy and Mason Myers of Greybull Stewardship, a recent investor in his brokerage franchise.
Franchises Allow for Geographic Tailoring
One of the most important benefits of a franchise model is that it allows for a firm to offer region-specific services. “I was convinced that the industry operated differently throughout the country,” explained Roger Murphy. “Local business customs dictate commission rates, whether you charge the client upfront fees, or how the closing process works.” Regional franchises allow brokers to simultaneously access a national footprint while offering services unique to the region and location.
Additionally, having franchised offices across the country allows each office to build the right relationships in the right locations. “To succeed in a region, you need to have relationships with the best lenders, attorneys, CPAs, etc. in order to assist your clients in getting deals done,” said Murphy. Staying up-to-date on all these relationships can be challenging without specialization by region.
Administrative Support & Brand Consistency
A franchise model allows for unique economies of scale — particularly when it comes to administrative support. Murphy said that it was a “gross misuse of time for business brokers to have to do both the dealmaking and the back office work.”
Instead, his strategy is to “allow the brokers to do what they do best, which is spend their time with the clients and developing referral networks while they leave the back office functions to the us at the corporate office.” He continued, “Our brokers can now focus entirely on the dealmaking part of the business. My hope is that our people have more time to be out with the client and making deals ”
Murphy, like many other brokerage franchises, is enabling the brokers to focus solely on building and maintaining the relationship by covering most marketing needs. “We create all the marketing materials for them that they will need: print, email campaigns, and other lead generating programs. We also provide all the website material, do all the technology work, manage e-mail systems, etc.”
Improved Access to Information
Mason Myers also pointed out that the franchise model offers unique informational benefits for brokers as well. “Whether it is market comparables, transaction information, or general regional knowledge, a network of brokers can invest in marketplace and deal information which an independent broker could never afford,” explained Myers.
He continued, “When you are part of a network, you have a lot of expertise available to you. If it is a type of business you haven’t sold before, there is someone in the network with experience selling that type of business. The whole is bigger than the sum of the parts because the entire network can take advantage of the experience of all the people in the network.”
But, There are Challenges
Although there are benefits to being part of a franchise model, it comes with its own challenges and difficulties. “One of the biggest challenges is the startup time it takes for new people to earn money — about 9 months or so,” explained Murphy. “We try to shorten that process so that the franchise can become profitable as soon as possible.” This uncertain profitability and the irregular revenue streams for most offices can create a serious burden on business. It can also be tricky for a new broker just starting out
An even larger challenge is ensuring the consistency of brand and talent. Unlike other retail franchises, which can succeed with formulaic repetition, success in the private capital markets requires an immense amount of effort, experience and skill. Every individual broker ends up building their own brand and skill set, which may be positively or negatively affected by the other brokers in their office.
As Murphy explained, “Getting people properly trained is also a challenge.” He continued, “Our industry is woefully lacking in formalized training programs. For years, we have required every person to come to Florida for one week of initial training. There is a lot of stuff we throw at them — it is like drinking from a firehose.” Murphy and Myers are planning to grow the education program even more. But, can classroom education effectively prepare a new advisor on all the intricacies of a process? What about more advanced training for experienced brokers?
And, inevitably, there is always the flight risk. After spending hours and dollars training and equipping a new franchisee, there is the risk that he will take that regional specialization, relationships, and knowledge to create an independent brokerage in the community. Neither Myers nor Murphy considered this a very serious risk, believing that their franchisees would stay within the Murphy family as long as it continued to offer great training programs and a very effective network of support and knowledge.
If you’re a business broker, what do you think? Is it a good idea to join a brokerage? Should brokers stay independent? Comment below: